The global financial crisis was not caused by the regulatory regime put in place in the UK under the Labour government. The way the UK financial sector was affected, however, was due to this. When the storm hit, the defensive walls of the British financial system had been removed – by opening up finance domestically – and the emergency services were confused and weak – by the 1998 settlement. Although, at some level, a total catastrophe was just averted, the 2007 crisis essentially reduced the British financial sector to rubble. Banks were nationalized or failed, credit ceased to flow, and the government was on the hook not only for huge amounts of debt but also for the structure and fate of the financial system. This was not even capitalism, let alone light-touch financial capitalism. The regulatory outcome of all this was an unintentionally widened scope of bank regulation.

There are two stages to the post-crisis regulatory response: Brown's immediate, emergency action; and the following Conservative-Coalition government's attempts to restructure banking after the end of the acute crisis.

Labour's emergency response: primacy of politics

As we have seen, the forced mergers and bailouts of the crisis resolution were organized in cooperation between the three Memorandum of Understanding authorities: Treasury, Bank, and FSA. In reality these decisions were taken through the Treasury and the prime minister's office (Darling 2011). It was a political operation, acting at a fast pace. While this partly reflects the seriousness of the crisis – requiring a political response to ensure legitimacy – and partly the fact that public money was being used in these recoveries, it nonetheless stands in stark contrast to the previous bank failures, which had been arranged by the Bank of England (House of Lords Select Committee 2008). Even in the 1990s the Bank was responsible for crisis management and it was the Bank that had to take the rap for any negative consequences. Whether the Bank was arranging new regulation and supervision (such as following BCCI and Barings), or organizing lifeboats for JMB and in the secondary banking crisis (which also involved public money to some extent), it was the Bank in charge, often without informing Downing Street of what they were doing.